Kenya receives Ksh.107B World Bank loan to strengthen budget

The World Bank Board has approved the disbursement of a Ksh. 106.7billion ($1 billion) loan to Kenya from its Development Program Operations (DPO) kitty.

Confirming the new loan, Treasury CS Ukur Yatani said the newly acquired funds will be channelled towards budgetary support.

“World Bank Board gives full approval to Kenya’s DPO of $1 billion. This is the largest DPO we’ve ever received. The fact that World Bank does not provide budget support to countries with weak macro-framework is a testimony of the confidence levels of the bank in our new policy reforms,” he said in a tweet.

The new facility from the multilateral lender features as direct support to government expenditures unlike program loans which are usually attached to specific terms and conditions.

This is Kenya’s largest windfall from the World Bank’s DPO facility on record and aligns to the National Treasury target of replacing its appetite for external commercial loans with cheaper concessional debt sources.

The loan is the second part of a two-operational programmatic series aimed at creating fiscal buffers over the the medium term and crowding in private investment.  Last year, the World Bank made a similar disbursement to the exchequer to the tune of Ksh. 80billion.

“COVID-19 represents an unprecedented shock to the global economy. The World Bank remains very committed to support our client countries in these very challenging times. This operation provides concessional resources to help Kenya navigate the current COVID-19 crisis and to cushion the impact on livelihoods and jobs, while supporting the continued operation of essential public services,” said outgoing World Bank Country Director for Kenya, Felipe Jaramillo.

The loan will attract an average interest rate of 1.7 percent and has a 30 year repayment period preceded by a grace period of five years.

The receipt of the new loan is in spite of  growing concerns on the public debt stock in recent months with total debt presently standing in excess of Ksh.6.3 trillion.

Despite concerns which have earned Kenya a negative credit rating on its debt outlook by global based Moody’s Investor Service and a high debt distress tag from the International Monetary Fund (IMF) in the last two weeks, the World Bank says Kenya must pull back on fiscal consolidation as the depressing conditions warrant higher government expenditure.

“This is the time when there is a great need to step up particularly on safety nets and support to small and medium enterprises (SMEs). We are still concerned on the level of debt but this would not be the time for fiscal consolidation,” added Jaramillo.

On its part, the National Treasury has pledged to pursue fiscal consolidation initiatives amidst the pandemic as it comes under pressure from higher debt servicing obligations.

For instance, debt servicing as a percentage of tax revenues stood at 45.2 percent at the end of 2019 meaning Kenya is at present spending 45 cents for every shilling in earned taxes to pay debt.

“Kenya is taking a comprehensive approach in dealing with increased risk in public debt. Improved revenue mobilization and spending discipline should reduce budget deficits, while best practices in debt management will help the Government manage public debt in a transparent and prudent manner. In the meantime, the Government continue to use its access to concessional financing and minimize commercial borrowing,” CS Yatani said at a news conference Wednesday.

Earlier this month, the IMF lent out a similar Ksh. 78.9billion direct loan to Kenya via its rapid credit facility (RCF) with the funds expected to cater for the country’s urgent balance of payment needs stemming from the Covid-19 pandemic.

The National Treasury has been banking on its development partners to meet its expenditure needs as tax revenues shrink from economic disruptions brought forth by the global health emergency.

Total revenues in nine-months through July to March 2020 were for instance shy of the target by over Ksh. 200billion.

The National Treasury expects further flows totalling to another Ksh. 107billion ($1 billion) from the European Union (EU).